The deputy's dilemma

Peter Costello is nervous that he may miss his chance at the top job. So while still the loyal offsider, he's busy shoring up party support to fend off other contenders. Deborah Snow profiles a PM in waiting.

Peter Costello is said not to care much for the harbour city. His breakfast at Bar Luca on Phillip Street just before Christmas wouldn't have improved matters. Searching for a quiet corner at the back of the licensed cafe, Costello, his press secretary, Niki Savva, and the Herald find themselves at a table in a small alcove dubbed the Gaming Room. The federal Treasurer regards the machines, purring at 8am, with disgust.

"Just what we need - more of these things," he says sniffily, before noting that the gambling Code of Conduct sign is partially obscured by pamphlets on top of the cigarette machine.

Costello's contempt for gambling is something he shares with older brother Tim, the Melbourne churchman and activist who is to the left of him on nearly everything else. The brothers also share a "scorn for the big end of town", says one friend, rooted in their fervent Baptist upbringing and the influence of "very very non-materialistic parents".

Somehow this hasn't affected Costello's tight-knit friendship with the Melbourne businessman Michael Kroger, his old ally from student politics who still pulls strings for him in the Victorian Liberal Party. But generally, says a key parliamentary supporter, Christopher Pyne, Costello disdains the pursuit of money. He not only "loathes the pokies because they redistribute wealth from the poor to the rich, he believes those who possess a great deal have a responsibility towards those who haven't. He has a strong aversion to multimillion-dollar executive salaries".

Which leads us back to the problem of the Treasurer and the Sydney business community. Many senior NSW business figures say he doesn't spend nearly enough time here, particularly in the boardrooms. One Melbourne friend says it's because "he's genuinely not comfortable with the flashiness and quite craven materialism of Sydney". Others believe it has more to do with the rising urgency of Costello's political ambitions - now tinged, perhaps, with the faintest hint of despair.

Explains one well-placed Liberal source, "It's a situation where, say, the Business Council of Australia finds it difficult to get him to a major function in Sydney, but he'll come up for a breakfast for one of his fairly inconsequential backbench colleagues - inconsequential, that is, to the world at large but very consequential to Peter Costello because that backbencher is going to be a vote in the party room. That's how he prioritises his time interstate - consolidating the numbers within the parliamentary party."

"Peter is seeing everything through the prism of his political goals," agrees a senior Liberal observer.

Even those who believe Costello is obsessed with the numbers don't seriously countenance him challenging Howard for the top job. Costello's supporters are counting on Howard to step down halfway through the next parliamentary term (assuming Howard wins the election). Their plans are centred on ensuring the crown does not at that point slip from Costello's grasp.

Some of his backers are worried that his present clear ascendancy may not be so apparent in two or 2 years' time. Observes one senior insider, "I think it is becoming a more competitive environment [for the leadership] than it was, and there are some very specific reasons. Tony Abbott [the Health Minister] is one. He is reinventing himself. So is Brendan Nelson [Education Minister]. Potentially, Malcolm Turnbull [the prominent Sydney businessman fighting for Liberal pre-selection for the blue ribbon seat of Wentworth] is another reason. I think it is still a one-horse race but not as much as it was. Tony is being encouraged from the top because John Howard sees Abbott as a bit in the same mould as himself, a more 'ordinary' person than Peter Costello."

Costello deadpans in response that "Tony is a good friend of mine, I've known him for about 25 years. I wouldn't deny anybody their own aspirations."

In Victoria, fierce battles over Senate pre-selections just before Christmas - in which Costello supporters played hardball to get "their" candidates up - are seen as another manifestation of his desire to lock in federal parliamentary numbers. Costello denies any involvement in the latest bout of rampant Victorian Liberal warfare. His disavowals are disputed by half a dozen former senior party office holders, most of whom refused to go on the record for fear, they said, of internal party repercussions. There is particular fury over the demotion of the hardworking parliamentary secretary for agriculture, Senator Judy Troeth, from the first to the third slot on the Victorian Liberal Senate ticket. Installed in her place is a Costello ally, Michael Ronaldson.

The former state party president, Joy Howley, told the Herald icily that "despite much talk of a new, inclusive party, Costello has chosen instead to shore up his own votes in Canberra in the recent round of preselections. In so doing he left many in the party and the community feeling disenfranchised." Costello refused to respond directly, his office referring the Herald instead to Ronaldson, who dismissed Howley's comments as "sad". Even so, the reopened trench warfare in the Victorian branch makes an uncomfortable backdrop for someone who may soon be touting his credentials as a leader for all the party.

COSTELLO has a firm band of rusted-on supporters in the federal parliamentary party, led by Christopher Pyne, the young and articulate South Australian MP, and Tony Smith, a former Costello staffer.

Other core members of the group include the former barrister turned Queensland senator George Brandis, Senator Brett Mason, Stephen Ciobo, Peter Dutton, Julie Bishop, Bruce Baird and senator-to-be Mitch Fifield, another former Costello staffer. Generally the group represents the younger members of the federal parliamentary party ("the bulk of those aged 38 and under", says one). They tend towards conservative economic values, but have a more liberal social outlook than Howard's backers. When Parliament sits they often meet midweek for informal dinners at Costello's favourite Canberra restaurants, Portia's Place and the Tang Dynasty. They're in open admiration of Costello, whom they describe as a knockabout guy with an easy touch who is congenial company.

Brandis says: "He's very funny. I don't think he's very complicated. He is completely comfortable in his own skin. He might come across as overbearing but he's not up himself. He's a pretty normal Australian of his age and suburban background, blessed with extraordinary talent."

Pyne lists Costello's favourite things as "cleaning his pool, mowing the lawn, going to the football, and having a barbecue on a Sunday with his mates and family members".

Ciobo concedes that "by far the biggest perception issue out there is that of arrogance. It's the smirk you hear about, and you can't talk to anyone without a number of people raising that issue. But when you get to know him there is not an arrogant bone in his body. People see someone who is very confident and that is perceived as arrogance." As an afterthought he adds, "He's got what I would call an average sense of humour ... maybe in his own mind he thinks he's Jimeoin [the comedian] and he's not - quite."

Mason, who shares a Canberra flat with Costello when Parliament sits, says he was happily surprised by Costello's people skills on a trip through central western Queensland in 2002. "I know people often think he's a Melbourne barrister suit-type, but his capacity to connect out there was much better than I though it was going to be. He was spectacular with people on that trip." Mason recalls Costello getting a good laugh when someone presented him with a gift of a whip. "He turned to [wife] Tanya and said 'Oh look, another whip for the closet'."

Yet others believe the perceived arrogance belies more fundamental failings: a driving need to control, a reluctance to take risks, an inability to admit mistakes and an over-sensitivity to criticism. There is talk that he surrounds himself with a Manchu court, where dissent is not encouraged. Says one senior Liberal: "His is not an office; it's a shrine. No ill is allowed to be spoken of the deity."

The perceived parliamentary clique around Costello had an end-of-year bonding session at Portia's just before Christmas, complete with party hats and seasonal bonhomie. But as one of those present conceded, "It might have been better if he had invited all the backbenchers around for a drink."

Pyne says of Costello that "the only faction he's interested in is the talent faction. It doesn't matter if you are right, left or centre, he supports people on the basis of talent. He's the pick and stick club." It's not hard to see how this can come across as smug to other sections of the parliamentary party.

Costello supporters talk a lot about loyalty - of theirs to him, of his to them, and of his loyalty to Howard. Mason says, "There are two things that are often taken for granted in the current Government. One is sound economic management and the second is party unity. Peter Costello is the architect of the first, and largely responsible for the second ... [as] the most loyal deputy leader of the Liberal Party there's ever been. He has been exceptionally loyal in very difficult circumstances."

There's a strong sense of a subtext here, a feeling that Howard didn't reciprocate that loyalty when he decided not to step down in the middle of last year. What passed between the two men has never been fully detailed by either. But certainly some Costello intimates are convinced Howard pegged Costello out to dry.

"Was there a deal? Nothing as specific as the Kirribilli pact [the secret undertaking Bob Hawke made before witnesses to hand over to Paul Keating]," says one source. "But Howard gave Costello every reason to believe he would retire at 64, and regularly told him he didn't have to worry. Now we know that was just to make sure Costello was in no position to do anything about the leadership when Howard announced he was staying."

A friend says flatly, "He had reason to believe he had a contract with Howard and Howard repudiated that contract." Costello points to an unspoken understanding. "In fairness to him, he never actually said to me, 'I'm going'. But, you know, there were discussions about events that were coming up and what might or might not be the case and, you know ... I interpreted that in, I think, a reasonable way."

Costello made no attempt to hide his disappointment at the time. It's been somewhat harder to gauge the ongoing effect on the most significant political partnership in the country, though it's apparent there's never been great personal warmth between the men. When pressed, Costello describes it as "a professional relationship".

Asked whether he and Howard like each other, he answers, "Um, well, obviously we've worked closely together for a long period of time, you know, I probably see more of John Howard than I see of my wife. So obviously we get on well enough to do that."

But did he take it personally when so many people had reportedly gone down on bended knee to ask Howard to stay on? He shoots back, with heavy irony, "So many people did, did they?" This rejoinder hangs in silence for some seconds before he adds, "What's happened, happened. Let's just get on with what we're doing. I'm not dwelling on it." However a senior Liberal insider says "Howard kicking Costello in the guts must [affect the relationship]. Unfulfilled expectations can do extraordinary things to one's mind. If Howard were to lose the election, that will thoroughly damage Peter's place in history, and if he wins, it will still damage it because Peter will be trying to win a fifth election for this Government as opposed to a fourth, and those who have gone beyond five - well, only Menzies did."

Another says the surprise elevation of Mark Latham, 42, to the Labor leadership has also been tough on Costello, 46: "The fact that Labor have done their generational change and the Liberals haven't only underscores the obvious glaring obstacle to it in the Liberal party. I know he's finding it very hard".

Costello admits to no such broodings. However, he remains unrepentant about wearing his heart on his sleeve on that cold midwinter day when Howard announced he was staying on. "I wasn't going to stand up and say 'Wahoo! Aren't I the luckiest man alive? Do that to me one more time'?" he tells the Herald. "I poured everything I had into this job as Treasurer. Everything I had. And the work I had done and have done for the party contributed a lot to what I regard as a successful Government. And then, of course, all of that changed. So was I going to say, 'This was a wonderful day'? No. If I had, I don't think anyone would have believed me. So I think I was actually understated [he pauses] ... but honest."

Sitting opposite this man who looks, through much of our two interviews, tired and edgy, you can't help but think that the endless grind over eight years of budget preparations, Expenditure Review Committee meetings and all the other fixtures on a Treasurer's calendar year have dripped a little acid into his soul. "He's less the person he was because of the job he's done," says one observer who knows the family well. "There's less spontaneity, humour and passion. The longer he's done that job, and buried himself in the detail, the more he's seen it's had costs. He doesn't have a lot of friends and doesn't have a lot of free time with his family. [But] at a certain point you've invested so much that you're trapped."

Certainly with three young children growing up during his years as Treasurer Costello has made huge sacrifices in family time. His wife Tanya, daughter of one-time NSW Liberal leader, Peter Coleman, works part-time as a lawyer and friends say Costello's parents have been vital in backstopping the children - Sebastian, 16, Madeleine, 15 and Phoebe, 9.

"Have I got the balance right?" Costello muses. "I don't think being out seven nights a week or six nights a week is a good balance, I think it's taken a terrible [corrects himself] ... a heavy toll on my wife, and she is a saint, too." One parliamentarian recalls telling Costello recently that his plans for the weekend included catching up with non-political friends. Costello replied: "Is there any such thing? I haven't got any of them left."

WOULD Costello make a good prime minister? His supporters scoff at the question. Others believe he lacks the extraordinary political antennae of Howard. They worry about a perceived narrowness, a fixity of mind that's the flip side of the driving self-discipline which marks the Costello persona.

Costello (whose middle name, curiously, is Howard) grew up in suburban Blackburn in Melbourne, raised on tribal loyalty to Essendon Football Club but also deeply immersed in the teachings and practice of the family's Baptist faith. He was a confident and successful high school student at Carey Grammar, where his father, Russell, taught, but seems to have been strangely immune to many of the normal temptations of male adolescence. As a teenager he spent one summer vacation preaching to holidaymakers from the back of a truck.

Biographer Shaun Carney quotes the former federal finance minister John Fahey, a friend of Costello's, saying, "He's the sort of person who, if I didn't know better, I'd say was isolated from the school of hard knocks that most of us went through in our youth."

Fahey wondered whether this had left Costello lacking social skills with "the more knockabout people". However a friend retorts: "Is it a problem that he's shown enormous self-restraint when he was younger, didn't get pissed, go with girls in the back of a ute or get on to marijuana like everyone else at Monash University? No."

After blazing a trail through the conservative ranks of campus politics, Costello practised as a barrister before winning the seat of Higgins in 1990, aged 32. Four years later, he'd become deputy leader of the Liberal Party. On the whole, it's been a dream run.

Yet though he's unarguably been a key component of the Government's success, there is is not universal acclaim for all aspects of his performance as Treasurer. He masters a brief brilliantly, works hard, and has systematically demolished his opposite numbers in Parliament.

Supporters love his performances in the House. Says Stephen Ciobo: "When Costello's got a question, you know it's going to be a show and that he's going to deliver in a way no else in that parliament can." But when Costello sang his own and the Government's praises at a Millennium Forum Liberal fundraising lunch in Sydney several weeks ago, not all in the 400-strong business audience were bedazzled.

One found his speech "truly bizarre. He basically told us the economy was buggered until he came along, he fixed it and we owed him big time. The idea that the economy is all solely due to Peter Costello is laughable. Howard would have paid some tribute to the role of business."

He's been accused of dropping the ball on superannuation reform, and not doing enough to tackle complex future challenges like Australia's ageing population and intergenerational wealth imbalances. A former senior bureaucrat says, "I don't think he has been the real driver of the Government's agenda in the way Keating was. And I don't think he's crafted a philosophy about changing from the 20th to the 21st century."

When Howard announced he was staying on, Costello raised expectations that he would start exploring ideas more broadly outside his portfolio. So far the results have been disappointing. His early forays on the importance of social capital and tolerance have not gathered momentum. He says he has further plans up his sleeve, and will be mulling ideas over the summer break, focusing on building up a "culture of community engagement and volunteerism". But does he have any early thoughts on how to achieve this?

"You're talking about religion, talking about faith, about families, all those things, and these are slow-burning things. Unfortunately society is not like an internet, you don't type up 'society' and go bang and have all the answers ... Important things in life grow out of values, faith, relationships, family, voluntary associations, culture. I think there are run-downs in these areas and the run-down has been slow and gradual and the run-up has to be slow and gradual." Through what mechanisms?

"Through personal leadership, inspiration, through the non-government institutions of society. Government has its role to play but if we think that governments can fix all our problems, we've fallen into the biggest trap of all." These are fine statements of political philosophy, but a long way from a policy road map.

Costello has always believed in the mantra of just reward for hard work. He believes in it for himself, and for others. But being seen to toil doggedly in the service of the Liberals and the Government for another 2 years may not be enough to guarantee him the prize he covets. He grudgingly concedes, "In politics, as in life, there's always an element of luck, isn't there?"

Costello's parliamentary dominance and withering tongue invite comparison with the former treasurer Keating, who once talked of "throwing the switch to vaudeville". Costello may have to do something more difficult - show he's able to take advice and gather allies outside his immediate circle, focus on process as much as outcomes, be seen to have a coherent and convincing vision for the future. All without setting rumours of a challenge running, and without going stale in the job. It's going to be a difficult balancing act, politically and personally.